- “Phase one” trade deal signing ceremony scheduled
- But U.S.-Chinese economic warfare has just entered a new phase
- How Washington policy is throttling U.S. tech’s ability to compete
- Markets revert to pre-Soleimani form
- Banks as a target of Iranian cyberattacks? Not unthinkable
- Nobel Prize-winning economist falls for basic internet scam.
Book it: China’s top trade negotiator comes to the White House next Wednesday to sign the vaunted “phase one” trade deal.
There were some last-minute hitches over the details of the Chinese translation… but we’re told those are mostly ironed out now.
We stick to our longer-term outlook, however: The deal being signed is only a truce in a long-term conflict — and by “long-term,” we mean as much as three decades.
Never mind the smiles and handshakes next week: Huge changes are afoot that threaten to turn America into a technological also-ran starting in 2020.
So says our resident futurist George Gilder, teeing up the latest of the Agora Financial team’s predictions for this year.
As a reminder, George is the fellow who showed President Ronald Reagan a microchip and told him it would change the world. A few years later, in 1990, he wrote a book called Life After Television — anticipating the advent of the smartphone. OK, he called it a “teleputer,” but the description was still uncanny, 17 years before the iPhone came along.
Mr. Gilder’s connections to innovators, entrepreneurs and technological visionaries are unmatched — both in the United States and China.
And what he’s hearing from his network is startling: The world of technology as we’ve known it so far in the 21st century is about to be upended.
“For two decades,” he explains, “China has oriented its entire technology sector toward the United States, relying throughout its infrastructure on U.S. chip designs, software architectures, networking protocols and other industry standards.
“Under that regime, U.S. companies Apple, Microsoft, Google and Amazon have ascended in 10 years to become the world’s four most valuable enterprises. U.S. chip producers such as Intel, Broadcom and Texas Instruments have flourished. Applied Materials and other U.S. producers of chip manufacturing gear have expanded their markets. U.S.-China trade has spearheaded the global economy.”
But no more. Forget the trade deal headlines: They’re meaningless in the face of what’s going on beneath the surface.
“United States policy has now persuaded China to bar all foreign computer equipment and software from its governmental facilities within the next three years,” Mr. Gilder tells us. “According to estimates in the Financial Times, the first phase will entail swapping out 20–30 million pieces of hardware.
“With the influence of Chinese government policy on its private firms, the long-term shrinkage of U.S. technology business potential is incalculable.”
The catalyst came three months ago — “when the Trump administration arbitrarily extended its Commerce Department ‘Entity List’ of banned suppliers,” George explains.
“Formerly restricted to weapons of mass destruction such as nuclear weapons and anthrax, the bans now apply to imaging chips, telecom routers and face recognition technology. There are no apparent limits on what might be considered an entity to be barred from U.S. markets and components.”
So tit-for-tat, Beijing decides to retrofit huge swaths of its digital economy, replacing made-in-America gear. “The immediate result of the Chinese edict against American suppliers,” says George, “is an unfathomably drastic reduction in the potential markets for U.S. technology.”
What does that look like? The only major chip producer still manufacturing in the United States is Intel… and George says Intel stands to lose $18 billion in annual sales to China now.
“Meanwhile, its Chinese rivals such as Huawei will gain huge new markets and learning curve gains.
“China now commands the bulk of world engineering and manufacturing talent… China now has three times as many technology initial public offerings as the U.S. does… Continuing its fabulously successful policy of special economic ‘free’ zones, China has recently announced a new free zone with ‘free flows’ of people, data and money on Hainan Island, the 13,000-square-mile tropical district in China.”
Meanwhile in America? “We are subsidizing useless windmills across the country in a demented campaign against delusions of climate change. We have devastated and paralyzed our companies with lawsuits. We suppress manufacturing with lawyers and luddites. We are now moving on to tie down our social networks and high-tech goliaths with regulatory chains.”
Result: “As the world realizes that it needs China more than it needs us, it is the U.S. that may be cut off,” George concludes.
If U.S. leaders choose to squander America’s unbeatable advantages, what do you do if you’re looking for the best place to put your money?
“In this environment,” he says, “I believe that the best policy for U.S. investors and the best way to preserve U.S. capital resources is to find technology companies outside the United States.”
Which is exactly what George has done with his latest research report. Literally dozens of U.S. companies, household names, will be affected by what he calls a “reboot” of the internet as we’ve known it for the last generation.
But you don’t have to be caught off guard. In fact, you can start grabbing your share of a $16.8 trillion bounty right away. Follow this link and George will tell you how. No long video to watch, either.
To the markets… where it’s as if all the geopolitical drama of the last week never happened.
At last check, the Dow has tacked on another 157 points this morning. At 28,923 the Big Board sits in record territory, recovering all the losses after the U.S. attack targeting Iranian Gen. Qasem Soleimani last Thursday night.
Gold, meanwhile, has sunk below $1,550 this morning — right back where it was a week ago. So much for the run past $1,600.
And as noted yesterday, crude has sunk below $60. At $59.08 this morning, a barrel of West Texas Intermediate trades at its lowest level so far in 2020.
The news from Washington today is that the House will vote on a resolution CBS News describes as “limiting President Trump’s ability to take military action against Iran.” Democrats say they’re making the vote a priority.
That’s curious in light of the fact that only last month, Democrats killed an amendment to the annual defense-spending bill that would have — well — limited President Trump’s ability to take military action against Iran. The amendment had bipartisan support, too, sponsored by Rep. Ro Khanna (D-California) and Rep. Matt Gaetz (R-Florida).
Said Khanna just after Soleimani was killed last week: “Any member who voted for [the defense spending bill] — a blank check — can’t now express dismay that Trump may have launched another war in the Middle East.”
But that won’t stop them from trying, apparently…
“Should Banks Expect Cyberattacks From Iran?” says a headline at the trade publication American Banker.
Well, it would be a classic instance of “asymmetric warfare.” If you don’t have military superiority — Iran’s air force consists of artifacts from the 1960s and ’70s maintained with paper clips and rubber bands — cyberattacks would be a logical response. And attacking the banking system would be a riposte against Washington’s efforts to shut Tehran out of nearly all international financial transactions. (As we write, Trump has just confirmed more sanctions against Iran.)
Thus, “I would imagine that U.S. organizations that are critical to facilitating financial transactions, like consumer or commercial payments and trading activity, will be at the top of Iran's hit list,” says Al Pascual of the firm Breach Clarity.
Joe Krull from Aite Group recalls an attack in 2014 attributed to Iranian hackers targeting the Las Vegas Sands — owned by Sheldon Adelson, a vocal critic of the Iranian regime. The attack cost Sands as much as $40 million.
True, all this discussion is hypothetical. Having said that, “If I were a chief information security officer for a bank or a financial services company,” says Krull, “I would be updating my run books for incident response.”
Speaking of “hackers,” we’re not sure where to begin here…
It’s been eons since The 5 has seen fit to comment about anything emanating from Paul Krugman, the economist and New York Times columnist. (The most recent mention in our voluminous archives is two years old — when we noted his infamous prediction from the ’90s that the internet’s impact on the economy would be no greater than that of the fax machine.)
Anyway, after this tweet yesterday, Krugman followed up with a post saying the Times tech staff is “on the case.”
Then he deleted the original tweet. “Times thinks it may have been a scam,” he said.
No, really?
C’mon, the Better Business Bureau has been “on the case” for nearly a year. “In one version of the scam, a pop-up suddenly appears on your computer screen with an ominous warning from a well-known tech support company. The pop-up will ask you to call a number to resolve the issue. When you call, a ‘technician’ will tell you your IP address is being used by shady individuals.”
Then the “technician” tells you how he can make it all go away if you pay a fee and give him remote access to your computer, of course.
Makes you wonder what Krugman would have done if he didn’t have the Times tech staff to put “on the case.” Heh…
Whelp, Krugman might have a Nobel Prize… but book smarts and street smarts ain’t the same thing, are they?
“I will propose another potential scenario,” writes one of our regulars, as readers engage in some what-ifs after the attack on Gen. Soleimani.
“What if, after ordering the strike on Soleimani, President Trump subsequently influenced the Iranian regime to:
- Harmlessly launch all those missiles that were built from the pallets of $ they received from Obama’s administration — and not only miss every target, but somehow fail to arm or detonate them
- Implode their nuclear development facilities — which would explain the two earthquakes
- Shoot down a plane filled with more of its own terrorists. (A 737… on its way to Ukraine… while ballistic missiles were being lobbed overhead… really?)
“Maybe that’s why POTUS didn't ‘poke the bear’ in Wednesday’s presser. He is the bear. Rather than step on the bad guys’ necks, he has the grace to let them save their own @$$es while ending the terrorism and working toward peace.
“Just a thought experiment. I know to the Never-Trumpers this probably sounds like another conspiracy theory. But it’s possible the good guys are giving the ayatollah an opportunity to smooth out his karma and liberate his people before retiring.”
The 5: More likely to us is that Secretary of State Mike Pompeo is playing a long game both inside and outside the administration, building up to a regime-change war.
In an important new piece at The American Conservative, Gareth Porter draws crucial parallels between recent events involving Iran… and the Gulf of Tonkin incident that drew America into Vietnam.
Recall that the supposed catalyst for all the recent trouble was a rocket attack on the K1 base near Kirkuk, Iraq, that killed a U.S. contractor back on Dec. 27.
Thing is, in the past this base had been targeted both by Iranian-backed militias and by the Islamic State.
“The IS forces in the area of Kirkuk where the K1 base was located had become increasingly active in 2018 and 2019, with a rapidly growing pace of attacks, operating freely out of the rugged mountainous north and south of the city,” Porter writes. “In fact, there had been more attacks by IS on government targets in Kirkuk in 2018 than anywhere else in Iraq, and it had the highest rate of growth as well.”
But Pompeo and co. wasted no time pointing the finger at Tehran. Not unlike Defense Secretary Robert McNamara’s response to the Gulf of Tonkin in 1964, Porter writes: “Even though he knew there were serious doubts on the part of the U.S. commander in the Gulf of Tonkin that an American ship had been attacked by North Vietnamese patrol boats on Aug. 4, McNamara did not inform President Lyndon Johnson and went ahead with the order for retaliatory strikes that night.
“Similarly, Pompeo apparently led Trump to believe that there was no doubt that pro-Iranian militia forces had killed an American in Kirkuk, despite the genuine uncertainty about the provenance of the attack.”
True, the situation has reverted to low-grade stalemate for the moment — and as noted above, markets have returned to their form of a week ago.
But will that still be the situation in another six months? We have our doubts…
Best regards,
Dave Gonigam
The 5 Min. Forecast
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